Gresham Computing

Bill Blythe - Gresham

Derivatives reporting: a tale of two cities

30 April 2014 | 1784 views | 0

2014 and the implementation of EMIR heralded the beginning of European reporting of derivatives transactions to trade repositories. As a result, firms must get to grips with their trades both internally and externally. The aim of the regulation was to make
it easier to identify and reduce systemic risk. Sounds good on paper, right? In practice, the short-term outlook is far from rosy.

A cloud of confusion is hovering over these reporting requirements, descending on all who try to make sense of it. To further complicate matters, the US has been trying to get its head around its own set of reporting requirements for the past year. Introducing
European requirements has further muddied the water as both sets of legislation are not identical. The result? Awkward transactions spanning two jurisdictions and a major problem for two of our biggest global financial hubs.

Not only are the financial institutions unclear about what is going on, but so are the regulators. The CFTC has indicated it is struggling to get to grips with the immense volume of data it is receiving as a result of Dodd-Frank. Over in Europe, ESMA released
a reporting Q&A document mere hours before mandatory reporting was due to begin. This kind of eleventh hour approach sends out alarming signals. So what’s the solution?

Firms must be absolutely confident in the data they present to the regulator. This can only be done by ensuring they have a holistic view of their trades. Ensuring a good reconciliation platform is in place internally is vital. Moving beyond spreadsheets
gives the certainty that all trades are captured and accounted for in real time. This level of detail is invaluable when it comes to both EMIR and Dodd-Frank. If firms can do this, they are well on their way to clearing the clouds of confusion and complying
with reporting requirements.

If EMIR and Dodd-Frank attain their goal, they will make the markets a better place by reducing risk and ensuring we have a clear picture of what is going on. This transparency is desirable but in order to reach it, firms and regulators on both sides of
the pond must first ensure they have a clear internal view in order to be able to correctly report externally.